Geitner Ex Rel. Southern Hosiery Mills, Inc. v. Mullins

TYSON, Judge.

Diane and Jacques Geitner, individually, and on behalf of Southern Hosiery Mills, Incorporated (“SHM”) (collectively, “plaintiffs”) appeal from orders entered denying plaintiffs’ motions for summary judgment and granting Martha Mullins, individually and as executrix of the Estate of Phillip A. Mullins, III (“the Estate”), Virginia Shehan, Peter Menzies, and SHM’s (collectively, “defendants”) motions for summary judgment regarding plaintiffs’ declaratory judgment action and derivative action. We affirm.

I. Background

SHM is a closely held corporation founded in approximately 1945 by Balfour Menzies (“Menzies”), P.G. Menzies, and W.B. Shuford. Menzies obtained ownership of virtually all of SHM’s stock. Menzies had two daughters, Diane Geitner (“Diane”), and Martha Mullins (“Martha”) and transferred most of his stock in. SHM, in equal parts, to them.

Diane married Jacques Geitner. Diane is an officer, director, and shareholder of SHM. Jacques Geitner is a director and shareholder of SHM. Plaintiffs own or are the beneficiaries of approximately 49% of SHM’s common stock.

Martha married Phillip A. Mullins, III (“Phillip Mullins”). Before his death, Phillip Mullins served as a director and the president of SHM. Martha and her children, including Virginia Shehan and Peter Menzies, own or are beneficiaries of approximately 49% of SHM’s *587common stock. Martha, Virginia Shehan, and Peter Menzies also serve as directors of SHM. The remaining approximately 2% of SHM’s common stock is owned by Ellen Menzies, a cousin of the sisters, Diane and Martha.

At all relevant times, SHM’s six person board of directors consisted of plaintiffs, Phillip Mullins, Martha, Virginia Shehan, and Peter Menzies. In 2003, Charles Snipes (“Snipes”) replaced Phillip Mullins as a director on SHM’s board.

Phillip Mullins died on 25 May 2004. On 26 May 2004, plaintiffs filed a complaint against Phillip Mullins, Martha, Virginia Shehan, and Peter Menzies. Plaintiffs sought only a declaratory ruling that the votes of the “Mullins Shareholders do not count in determining matters related to Phillip Mullins or members of his immediate family, and that the votes of [plaintiffs] do count regarding such matters.” Plaintiffs never served this complaint on defendants.

Martha qualified as executrix of the Estate and opened the estate in the office of the clerk of superior court in Catawba County. The clerk issued letters testamentary. Beginning on 18 June 2004, Martha published in the Hickory Daily Record a statutory general notice to all creditors once a week for four consecutive weeks. This statutory notice notified all existing and potential creditors to present any claims against the Estate on or before 18 September 2004. Failure to provide notice of any claim on or before 18 September would result in the claim being “forever barred” against the Estate. N.C. Gen. Stat. § 28A-19-3 (2005). Plaintiffs did not file a Notice of Claim against the Estate at any time on or before 18 September 2004. On 12 January 2005, the clerk of superior court ordered the Estate closed.

On 13 January 2005, plaintiffs filed an amended complaint against Martha, individually and as executrix of the Estate, Virginia Shehan, Peter Menzies, and SHM. The amended complaint asserted two claims: (1) the original declaratory judgment action regarding the voting rights of SHM’s board of directors and (2) a derivative action on behalf of SHM against the Estate to recover “unauthorized payments” made to Phillip Mullins before his death. The amended complaint was served on defendants on 20 January 2005.

On 17 March 2005, plaintiffs moved for summary judgment regarding their declaratory judgment action against defendants. On 20 April 2005, the trial court denied plaintiffs’ motion. Plaintiffs appeal in part from this order.

*588On 4 May 2005, plaintiffs petitioned the clerk of superior court for Catawba County to reopen the Estate. An assistant clerk initially reopened the estate based upon allegations that “[n]ecessary act(s) remain unperformed by the Personal Representative.” Martha, as executrix, objected to reopening the Estate and requested a hearing before the clerk of superior court.

On 9 June 2005, the clerk conducted a formal hearing to determine whether the Estate would remain closed. On 9 June 2005, the clerk heard arguments from both parties and considered the briefs and record evidence. The clerk found that the order which reopened the Estate was “improvidently and inappropriately entered” and entered an order setting aside reopening the estate.

On 21 June 2005, plaintiffs noticed appeal of the clerk’s order to the Catawba County Superior Court. Plaintiffs alleged: (1) the clerk’s order did not meet the procedural requirements of N.C. Gen. Stat. § l-301.3(b) and (2) Martha had knowledge of plaintiffs’ claim against the Estate, but failed to provide them personal notice. The superior court heard plaintiffs’ appeal on 10 October 2005 and entered an order on 2 November 2005 affirming the clerk of superior court’s order setting aside the reopening of the estate. Plaintiffs appealed to this Court. This Court affirmed the superior court’s order. See In re Estate of Mullins, 182 N.C. App. 667, — S.E.2d — (2007).

In September 2005, defendants moved for summary judgment regarding plaintiffs’ derivative action on behalf of SHM against the Estate to recover “unauthorized payments” made to Phillip Mullins before his death. On 31 October 2005, the trial court granted summary judgment for defendants. In November 2005, defendants moved for summary judgment regarding plaintiffs declaratory judgment action regarding the voting rights of SHM’s board of directors. On 29 December 2005, the trial court granted defendants’ motion. Plaintiffs also appeal from both of these orders.

II. Issues

Plaintiffs contend the trial court erred by: (1) denying their motion for summary judgment and granting defendants’ motion for summary judgment regarding their declaratory judgment action and (2) granting defendants’ motion for summary judgment regarding plaintiffs’ derivative action.

*589III. Standard of Review

Summary judgment is proper where “the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that any party is entitled to a judgment as a matter of law.” N.C. Gen. Stat. § 1A-1, Rule 56(c) (2005). “[S]ummary judgment may be appropriate in a declaratory judgment action, under the same rules applicable in other actions.” Floyd v. Integon Gen. Ins. Corp., 152 N.C. App. 445, 448, 567 S.E.2d 823, 826 (2002).

The parties stipulated no genuine issue of material fact exists regarding plaintiffs’ declaratory judgment action before the trial court. See Floyd, 152 N.C. App. at 448, 567 S.E.2d at 826 (“[I]n the instant case the parties stipulated to all material facts, leaving only questions of law; accordingly, summary judgment was proper in this case.). Since the parties stipulate no issue of material fact is in dispute, “[o]ur only inquiry is whether defendants are entitled to judgment as a matter of law.” McCabe v. Dawkins, 97 N.C. App. 447, 448, 388 S.E.2d 571, 572, (citation omitted), disc. rev. denied, 362 N.C. 597, 393 S.E.2d 880 (1990). We must determne whether summary judgment was properly entered in defendants’ favor, or whether summary judgment should have been entered for plaintiffs. Floyd, 152 N.C. App. at 448, 567 S.E.2d at 826.

IV. Plaintiffs’ Declaratory Judgment Action

Plaintiffs argue the trial court erred by denying their motion for summary judgment and granting defendants’ motion for summary judgment regarding their declaratory judgment action. Plaintiffs’ declaratory judgment action petitioned the trial court to declare that “each of [plaintiffs’] votes counted (and will count) on matters related to [Phillip Mullins] and [Virginia Shehan], and that none of the [defendants’] votes . . . counted (or will count) in such matters.” Plaintiffs sought to invalidate defendants’ votes as directors of SHM regarding Phillip Mullins and Virginia Shehan’s compensation and the election of Virginia Shehan as SHM’s president. Plaintiffs contend the individual defendants are all related and their past votes were voidable as conflict of interest transactions under N.C. Gen. Stat. § 55-8-31 (2005).

*590A. N.C. Gen. St.at. § 55-8-31

N.C. Gen. Stat. § 55-8-31 states:

(a) A conflict of interest transaction is a transaction with the corporation in which a director of the corporation has a direct or indirect interest. A conflict of interest transaction is not voidable by the corporation solely because of the director’s interest in the transaction if any one of the following is true:
(1) The material facts of the transaction and the director’s interest were disclosed or known to the board of directors or a committee of the board of directors and the board of directors or committee authorized, approved, or ratified the transaction;
(2) The material facts of the transaction and the director’s interest were disclosed or known to the shareholders entitled to vote and they authorized, approved, or ratified the transaction; or
(3) The transaction was fair to the corporation.
(b) For purposes of this section, a director of the corporation has an indirect interest in a transaction if:
(1) Another entity in which he has a material financial interest or in which he is a general partner is a party to the transaction; or
(2) Another entity of which he is a director, officer, or trustee is a party to the transaction and the transaction is or should be considered by the board of directors of the corporation.
(c) For purposes of subsection (a)(1) of this section, a conflict of interest transaction is authorized, approved, or ratified if it receives the affirmative vote of a majority of the directors on the board of directors (or on the committee) who have no direct or indirect interest in the transaction. If a majority of the directors who have no direct or indirect interest in the transaction vote to authorize, approve, or ratify the transaction, a quorum is present for the purpose of taking action under this section. The presence of, or a vote cast by, a director with a direct or indirect interest in the transaction does not affect the validity of any action taken under subsection (a)(1) of this section if the transaction is otherwise authorized, approved, or ratified as provided in that subsection.
(d) For purposes of subsection (a)(2), a conflict of interest transaction is authorized, approved, or ratified if it receives the vote of *591a majority of the shares entitled to be counted under this subsection. Shares owned by or voted under the control of a director who has a direct or indirect interest in the transaction, and shares owned by or voted under the control of an entity described in subsection (b)(1), may not be counted in a vote of shareholders to determine whether to authorize, approve, or ratify a conflict of interest transaction under subsection (a)(2). The vote of those shares, however, shall be counted in determining whether the transaction is approved under other sections of this Chapter. A majority of the shares that would if present be entitled to be counted in a vote on the transaction under this subsection constitutes a quorum for the purpose of taking action under this section.

(Emphasis supplied).

B. Familial Relationships

Plaintiffs argue that defendants’ past and future votes as directors are voidable as conflict of interest'transactions under N.C. Gen. Stat. § 55-8-31 solely because of their familial relationship with Phillip Mullins and Virginia Shehan. We disagree.

The General Assembly clearly and unequivocally did not define a director as having a conflict of interest solely based upon a familial relationship in N.C. Gen. Stat. § 55-8-31. Our Supreme Court has stated, “it is well settled that where the language of a statute is clear and unambiguous, there is no room for judicial construction and the courts must give [the statute] its plain and definite meaning, and are without power to interpolate, or superimpose, provisions and limitations not contained therein.” Union Carbide Corp. v. Offerman, 351 N.C. 310, 314, 526 S.E.2d 167, 170 (2000) (internal quotations and citations omitted).

Plaintiffs cite no controlling North Carolina authority to support their argument and instead rely on cases from other jurisdictions, as persuasive authority, in support of their argument. See In re Mi-Lor Corp., 348 F.3d 294, 306 (1st Cir. 2003) (under Massachussetts law, a director is. interested if they have a familial relationship with a party to a corporate transaction); see also Resolution Trust Corp. v. Dean, 854 F. Supp. 626, 646 (D. Ariz. 1994) (a director is interested when the corporate transaction involves a person with whom he has a familial relationship).

In each of the cases cited by plaintiffs, that jurisdiction has either legislatively or judicially ruled a director has a conflict of interest if a *592party to the transaction with the corporation is a member of the director’s family. It is not the proper role or function of this Court to extend N.C. Gen. Stat. § 55-8-31 beyond the clear and unambiguous limits established by the General Assembly. Union Carbide Corp., 351 N.C. at 314, 526 S.E.2d at 170.

C. Transactions with the Corporation

N.C. Gen. Stat. § 55-8-31 governs director conflict of interest transactions. N.C. Gen. Stat. § 55-8-31(a) states, “[a] conflict of interest transaction is a transaction with the corporation in which a director of the corporation has a direct or indirect interest.” (Emphasis supplied). N.C. Gen. Stat. § 55-8-31(a) applies to interested director transactions “with the corporation.” See also Smith v. Robinson, 343 F.2d 793, 799 (1965) (emphasis supplied) (The words “corporate transaction” in former N.C. Gen. Stat. § 55-30(b), the immediate predecessor to N.C. Gen. Stat. § 55-8-31, “were intended to apply to a situation where the corporate director is dealing directly with the corporation.'"').

Plaintiffs assert N.C. Gen. Stat. § 55-8-31 as a basis to void defendants’ votes as directors of SHM, but do not challenge any “transaction with the corporation” by defendants. N.C. Gen. Stat. § 55-8-31 provides no mechanism to challenge the actions of a director discharging his duties as a director, including voting on electing officers and setting officer compensation. None of these actions by the board of directors is a “transaction with the corporation.” Instead, the board of directors, as the governing body of the corporation, were electing the officers and managers of the corporation and setting the compensation these officers and managers were to receive. N.C. Gen. Stat. § 55-8-31(a).

When a director is discharging duties as a director, the proper statutory mechanism to challenge the director’s action is N.C. Gen. Stat. § 55-8-30. N.C. Gen. Stat. § 55-8-30(a) (2005) states:

(a) A director shall discharge his duties as a director, including his duties as a member of a committee:
(1) In good faith;
(2) With the care an ordinarily prudent person in a like position would exercise under similar circumstances; and
(3) In a manner he reasonably believes to be in the best interests of the corporation.

*593(Emphasis supplied). Plaintiffs failed to argue any of defendants’ votes or actions violated N.C. Gen. Stat. § 55-8-30.

Consistent with the plain and unambiguous language of the statute, the trial court correctly found “[p]ursuant to § 55-8-31, none of the members of [SHM’s] Board of Directors (the “Board”) who voted on the transactions about which Plaintiffs complain in Count One of the Amended Complaint had a direct or indirect conflict of interest[.]” None of the actions plaintiffs complained of were “transactions with the corporation.” N.C. Gen. Stat. § 55-8-31. The trial court properly denied plaintiffs’ motion and granted defendants’ motion for summary judgment regarding plaintiffs’ declaratory judgment action. This assignment of error is overruled.

V. Plaintiffs’ Derivative Action

The trial court based its decision to grant defendants’ motion for summary judgment regarding plaintiffs’ derivative action on its finding the Estate was properly closed when plaintiffs’ complaint was filed. The superior court affirmed the clerk’s order that stated the reopening of the Estate was “inappropriately entered.”

Plaintiffs argue if this Court finds the superior court erred in affirming the clerk of court’s order setting aside the reopening of the Estate, the sole ground for granting defendants’ motion for summary judgment no longer exists. In that event, the trial court’s order granting defendants’ motion for summary judgment must be reversed. As noted above, this Court affirmed the superior court’s order, which affirmed the clerk of superior court’s order setting aside the ex parte order reopening of the Estate. See In re Estate of Mullins, 182 N.C. App. 667, — S.E.2d — (2007). This assignment of error is overruled.

VI. Conclusion

The General Assembly clearly and unequivocally omitted imposing or regulating a conflict of interest on a corporate director based solely upon a familial relationship between that director and another director, officer, or employee in enacting N.C. Gen. Stat. § 55-8-31. As noted during oral argument, all parties before us are closely related and are shareholders, directors, and officers in this closely held family corporation. The trial court properly granted defendants’ motion for summary judgment regarding plaintiffs’ declaratory judgment action.

*594We previously held' the Estate was properly closed. The trial court’s order granting defendants’ motion for summary judgment is affirmed.

Affirmed.

Judge ELMORE concurs. Judge GEER concurs in the result only by separate opinion.